Export Woes 

Ethiopia’s Economy Takes a Hit

Ethiopia has experienced a decline in its export earnings, posing severe challenges to covering its import bills. Unrest and conflicts have resulted in supply chain disruptions, hindering production and export. Ethiopia heavily relies on agricultural products for export, including coffee, oilseeds, and textiles. Fluctuations in global commodity prices significantly contributed to the country’s declining export earnings. The overall macroeconomic situation, which resulted in an overvalued local currency, has made it challenging to offer Ethiopian commodities at competitive prices in the global market. Limited transportation options, inefficient customs procedures, and inadequate port facilities add to delays and increased costs, making Ethiopian exports less competitive. The government’s decision demanding commercial banks surrender 70Pct of export proceeds further exacerbated the problem. EBR’s Eden Teshome explores. 

The just-ended year has witnessed an unprecedented decline in export revenues for Ethiopia. According to the Ministry of Trade & Regional Integration (MoTRI), Ethiopia registered USD 3.6 billion in export revenues last year. This figure sharply contrasts the USD 5.2 billion plan for the year and the 4.1 billion recorded in the previous year. That’s why when officials of the Ministry appeared before parliament in early July to report their performance; they didn’t have the figures to impress the MPs.

Indeed, the year ended with multifarious challenges putting combined effects on Ethiopia’s exports. From the global surplus of coffee produced because of good weather in Brazil to the textile and garment export restrictions to the big US market because of the ban on to use of AGOA privileges and the lack of raw materials and power outages, the manufacturing sector was also crippling to produce at total capacity and generate sufficient export revenues.

In the preceding year, Coffee was a big success story in Ethiopia. With USD 1.4 billion in revenues and total export volume surpassing 300 thousand tonnes for the first time, the Ethiopian Coffee and tea authorities had every reason to celebrate the achievement. However, that was an achievement mainly due to a sudden surge in demand and price because of the bad weather and some logistical hurdles that made Brazilian coffee less available in the global market than the previous years. With better weather and additional investment in the coffee farm, this year’s Brazilian coffee crop production saw a massive leap forward with around 59.6 million bags of 60 kilograms, 30.1Pct higher than the previous year’s supply.

Brazil is a significant coffee market influencer globally. With 3.5 million tonnes of production annually, it supplies more than 30Pct of the global coffee supply. Global supplies will fall short if anything goes wrong in Brazilian coffee farms, causing price surges. That was what happened last year. Of course, the situation created a bonanza for many countries, including Ethiopia, to witness their best performances in many years in the sector. Indeed there was also the impact of COVID on the story. Some science reports show that coffee improves body immunity, and hence taking more coffee was recommended as one of the several ways of reducing the adverse effects of the pandemic. The impact of this has been a surge in demand while the significant player in the market was in bad shape due to bad weather and the absence of sufficient labour workers in the coffee farm as many countries implemented strict social distancing protocols, Brazil being one of the countries.

Although agricultural products are Ethiopia’s most significant export commodities, coffee plays a major role. It accounted for over 34Pct of the country’s total export revenues last year. With around six million farmers engaged in the sector, the coffee industry provides employment opportunities for over 15 million people through the value chain. Coffee generated more than 60Pct of the total export revenues for many years. However, with the government’s policy to boost export revenues in recent decades, the country has made significant efforts to diversify export commodities by promoting other agricultural products, emphasizing mining and power generation, and pushing the frontiers of manufacturing such as textiles, leather and apparel industries.

As a result, minerals and ores such as Gold, Tantalum, and Potash have become essential export commodities in Ethiopia. Gold became Ethiopia’s second-largest export commodity, accounting for over 20Pct of the country’s total exports in 2020. Earnings from minerals in the concluded year reached USD251 million, constituting 6.9Pct of the overall export income for Ethiopia. The figure represents a significant decline of USD 323 million from the previous fiscal year. The revenue decrease is due to the notable reduction in gold supply from major gold-producing regions like Oromia and Benshangul Gumuz. These areas contribute nearly 90Pct of the country’s mineral earnings, with gold being the dominant contributor. Additionally, the precarious peace and stability in the two states have led to a flourishing contraband trade along Ethiopia’s borders with Sudan and South Sudan. This has further played a role in diminishing the export revenue from gold. In the year, Ethiopia earned USD 226.8 million from the export of gold; this is 40.5Pct of the previous year’s USD 560 million income.

Textile products are also an essential export commodity in Ethiopia. They include products such as cotton yarn, fabrics, and garments. The textile and garment industry has increased in recent years, providing employment opportunities for hundreds of thousands of people and generating significant foreign exchange earnings for the country. This unprecedented growth even prompted the government to expand industrial parks nationwide. Although products ranging from pharmaceuticals to construction materials are produced in the various parks, textiles and apparel products take the most significant share of the produce in the industry parks.

One of the industrial parks established to create employment opportunities for 60,000 people and generate one billion dollar export revenues when operating at total capacity is the Hawassa Industrial Park, which houses acclaimed global brand manufacturers such as PVH, is one of the largest and globally known iconic brands such as Calvin Klein and Tommy Hilfiger. Most of these apparel products, which took advantage of the African Growth and Opportunity Act (AGOA) that gives the privilege Ethiopia to export with zero tariffs to the big US market, were hard hit when the US banned Ethiopia from the right owing to the war in Northern Ethiopia. Ethiopia exported USD 520 million in 2021/22 to the US market under AGOA. However, the figure became nil in the just-ended year because the United States lifted the tariff-free privilege. Many apparel manufacturers that moved to Ethiopia were already severely affected by COVID-19, and the AGOA ban increased their challenges. Some even left the country because the feasibility of their investment in Ethiopia without tariff-free access to the US market was unthinkable.

Flowers are another significant export commodity in Ethiopia. To be sure, Ethiopia is the second-largest flower exporter in Africa after Kenya. The sector provides employment opportunities for over 200,000 people. Last year, the industry generated USD 541.6 million. This figure shows a decline as this year’s revenue is at most half a billion dollars.

According to MoTRI, Somalia, the United States, Germany, the Netherlands, Saudi Arabia, the United Arab Emirates, Belgium, Japan, Israel, Djibouti, India, and South Korea have imported 72Pct of Ethiopia’s export commodities in the concluded year.

From a continental standpoint, 40.7Pct of Ethiopia’s exports by value went to Asian nations while 27.4Pct went to Europe. Another 19.1Pct of Ethiopia’s exports went to Africa, while 11.5Pct went to North America.

Mesfin Ayele, a senior advisor to the trade minister, lists three factors for the weak performance of the export trade. Shortages in export commodities supply in the local market and drops in demand in the global market were significant challenges. The advisor added that contraband was another major factor that dented the export trade. The shortage in the supply of export commodities results from low agricultural productivity. The rampant contraband activities in the country also made it difficult for exporters to source export items because people working under the shadow offer higher prices, as they export illegally without bringing the export revenues into the formal channel. This way, they get two advantages: get all the foreign currency for their own, without surrendering 80Pct of the Export Proceeds at the official rate, and exchange the whole value at the parallel market rates.

Tameru Tadesse is the founder and manager of Alo Coffee PLC. Tameru says that the decline in export revenues is attributable to the unpredictable global markets and the lack of peace and stability domestically. High commodity prices in the local market and restrictions on using foreign exchanges generated from exports discouraged exporters from shipping more. In the year, exporters were allowed to use only 20Pct of the foreign currency earned, [lower than the 50Pct in the preceding year].” Tameru told EBR.

The political instability and conflict in the Amhara and Oromia, two of the central states that produce a bulk of export commodities in Ethiopia, have significantly impacted agricultural productivity and exports. The lack of peace and stability has led to various challenges for farmers and exporters, including limited access to markets, reduced investment in agriculture, and disruptions to supply chains.

One of the most significant impacts of the lack of peace and stability on agriculture in Ethiopia has been the displacement of farmers, leaving them with no land to farm. Conflict and insecurity have forced many farmers to abandon their farms, leading to a decline in agricultural productivity and a reduction in the amount of crops available for export. It has been a case in point in the sesame-producing Amhara and coffee-producing Oromia states.

The lack of peace and stability has also led to limited market access for Ethiopian farmers and exporters. Conflict and insecurity can make it difficult for farmers to transport their crops to market. This ripple effect throughout the agricultural supply chain affects everyone, from small-scale farmers to large exporters.

“The lack of peace and stability also disrupts supply chains, making it difficult for exporters to meet the demands of their customers. This in turn leads to delays in shipments, lost contracts, and reputational damage for Ethiopian exporters.” Atlaw Alemu (PhD), assistant professor of economics at Addis Ababa University, shares his concerns. “There are security problems in some major coffee-growing areas of Ethiopia which caused the coffee supply to drop. So there needs to be peace as peace is the main solution for most of the problems the sector is facing, as there can’t be productivity without peace and productivity is the only solution for the challenges the exporters have been facing,” says Atlaw.

Ethiopian law prohibits trading fine/speciality coffee in the local market. “During the previous fiscal year, counterfeiting and illegal coffee trade cost the country an estimated USD13 million. Given that Ethiopia’s economy is heavily dependent on coffee, illegal trade, contract breaches, and bean forgery have been ongoing issues that have resulted in sizable financial losses.” according to the assistant professor.

The export-import sector of Ethiopia is essential to the country’s economy, significantly boosting its GDP and creating jobs for millions. However, the industry faces several difficulties that impede its expansion and advancement. Atlaw says “Ethiopia must invest in improving its infrastructure, SMEs’ access to financing, and the promotion of value-added and agro-processing sectors, but more significantly, the country as a whole needs to experience peace and stability. By doing this, Ethiopia can fully utilize the export industry and contribute to the economic development and expansion of the country.”

Ethiopia has been striving to boost export earnings. However, the last decade showed a stagnant performance with around three billion in revenues. This static performance was reversed in 2019 when the sector started to progress for three consecutive years, last year’s USD 4.4 billion being the peak. This year’s export performance has declined due to domestic and global factors, posing a stern challenge to the country’s economic performance.

11th Year • August 2023 • No. 120 EBR

Eden Teshome

Editor-in-Chief of Ethiopian Business Review (EBR). She can be reached at eden.teshome@ethiopianbusinessreview.net

Leave a Reply

Your email address will not be published. Required fields are marked *

Ethiopian Business Review | EBR is a first-class and high-quality monthly business magazine offering enlightenment to readers and a platform for partners.

2Q69+2MM, Jomo Kenyatta St, Addis Ababa

Tsehay Messay Building

Contact Us

+251 961 41 41 41